SEC Extends Deadline for VanEck's Spot Ether ETF Application

Here are some of the major developments from the world of crypto over the past few days
Some of the major developments from the world of crypto.
Some of the major developments from the world of crypto.

The U.S. Securities and Exchange Commission (SEC) has postponed a decision on the $3,533 VanEck spot Ether exchange-traded fund (ETF) application. In a March 20 announcement, the SEC said it has extended the approval or denial period for the Cboe BZX Exchange to list and trade shares of the VanEck Ethereum ETF. The Commission has until May 23 to make its final decision on the investment vehicle. 'The Commission believes it is appropriate to establish a longer period within which to issue an order approving or disapproving the proposed rule change to allow sufficient time to consider the proposed rule change,' the SEC said.

The announcement came after the SEC extended approval deadlines for spot Ether ETFs from Hashdex and ARK 21Shares. Bloomberg ETF analyst James Seyffart speculated that the current round of Ether ETF applications with a May 2024 deadline would ultimately be rejected. The SEC is reportedly investigating companies over alleged ties to the Ethereum Foundation as part of its efforts to classify Ether as a security. It is unclear what this research could mean for ETH ETF approvals.

The Commission began approving investment vehicles related to Ether futures in October 2023, indicating acceptance of the crypto asset as a commodity. The SEC's delay in VanEck's application also allowed for public comment on the proposal. On January 10, the SEC allowed U.S. exchanges to list and trade shares of the Bitcoin BTC Spot ETF valued at $67,320 for the first time, and a majority of commissioners approved the rule changes. Two U.S. Senators, Jack Reed and Laphonza Butler, have called on SEC Chairman Gary Gensler to reject Ether ETF applications, saying they would pose 'enormous risks' for retail investors.

Spot Bitcoin ETFs experience third consecutive day of net outflows, totaling $261 million.

Bitcoin spot ETFs have experienced net outflows for the third day in a row, with $261 million flowing out. US-listed Bitcoin spot ETFs lost around $742 million in just three trading days. Bitcoin BTC exchange-traded funds (ETFs) worth $67,007 saw a third straight day of net outflows; as of March 20, $261.5 million had exited the ten approved funds. This brings the three-day net outflows to $742 million, as seen on March 18 and 19, with corresponding outflows of $154.3 million and $326 million, respectively, according to Farside Investors. The outflow was mainly due to another heavy day of outflows from the Grayscale Bitcoin Trust (GBTC), which lost $386.6 million, while the Invesco Galaxy Bitcoin ETF (BTCO) also saw $10.2 million leave the fund. Both outflows exceeded the inflows of the other eight approved ETFs.

BlackRock's iShares Bitcoin Trust (IBIT) experienced its second-lowest day of net inflows, with $49.3 million. This is only $4 million more than its lowest daily inflow on February 6. The Fidelity Wise Origin Bitcoin Fund (FBTC) also had a low inflow day, receiving only $12.9 million. Among the ten ETFs, this is the second-highest day of net outflows, with only $326.2 million surpassing it on March 19. BTC has seen a decrease in value since its record high on March 14, as the countdown to the blockchain halving, which reduces mining rewards by 50%, enters its final month. Coinmarketcap data suggests that BTC historically falls leading up to the halving, and this trend has continued in the 30 days leading up to the event.

Concerns Arise Over SEC's Ethereum Investigation Potentially Impeding ETFs

Experts are concerned that the SEC's investigation into the Ethereum Foundation could be used to hinder the approval of Ether spot ETFs. Industry experts suggest that the SEC's reported investigation into the Ethereum Foundation could be part of a coordinated effort against Ether (ETH) and may serve as a basis for rejecting or delaying Ether spot ETFs. On March 20, Fortune reported that the US Securities and Exchange Commission had issued several subpoenas to companies that had worked with the Ethereum Foundation.

The SEC has no valid reason to reject ETH ETP applications, argued Paul Grewal, Chief Legal Officer of Coinbase. SEC Chairman Gary Gensler once testified before Congress that Ether is not a security, and the SEC is unlikely to change its stance by challenging ETH's established regulatory status, which it has repeatedly supported. "It now feels like a coordinated attack on ETH," said Travis Kling, chief investment officer at Ikigai Asset Management, in a March 20 post. Fox Business reporter Eleanor Terrett even suggested that the subpoenas could explain why the securities regulator appeared reluctant to work with potential Ether ETF spot issuers.

The regulator's apparent lack of commitment is one of the main reasons why Bloomberg ETF analysts Eric Balchunas and James Seyffart recently reduced their chances of spot Ether approval by May from 70% to 25%. Meanwhile, House Financial Services Committee Chairman Patrick McHenry and others have expressed opposition to the reported move, saying it contradicts the regulator's previous actions. Applicants include BlackRock, VanEck, ARK 21Shares, Fidelity, Invesco Galaxy, Grayscale, Hashdex, and Franklin Templeton. Balchunas and Seyffart now expect Ether spot ETFs to be rejected but anticipate approval sometime before 2025.

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